nib - financial analysis

A Financial Analysis of NIB Bank Limited!

NIB Bank LimitedAn IntroductionThe NIB Bank Limited is a scheduled commercial bank and is principally engaged in banking business as defined in the Banking Companies Ordinance, 1962. It was incorporated in March 2003 as a publicly listed company. It is listed on all the three stock exchanges (KSE, ISE & LSE) of the country and has framework of 240 branches all over the Pakistan. The NIB Bank Limited is the first investment bank in Pakistan by the Temasek Holdings of Singapore, in terms of amount; it is a largest non privatized project by any foreign investor in the banking sector of Pakistan. This foreign investment by Temasek is the showcase of confidence for foreign investors interest in Pakistan. The NIB incorporation greatly improves the image and performance of Pak Banking Sector and also Pakistans investment profiles.

A Brief HistoryThe NIB Bank Limited (formerly NDLC - IFIC Bank Limited) was incorporated in March 2003 as a publicly listed company. In October 2003, all assets and liabilities and all rights and obligations of the former National Development Leasing Corporation (NDLC) and Pakistan Operations of IFIC, Bangladesh were amalgamated with and into NIB Bank with the paid up capital of Rs. 1.2 Billion (bn). In April 2004, the Pakistan operations of Credit Agricole Indo Suez (the Global French Bank) were also amalgamated with and into NIB Bank.

An Analytic Approach by Ali Raza Sahni for NIBs Future ///

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A Financial Analysis of NIB Bank Limited!In March 2005 Temasek Holdings of Singapore acquired 25% shareholding in NIB Bank, through Bugis Investments (Mauritius) Pte Limited. This shareholding was further enhanced to over 70% in June 2005 by an increase in NIB's paid up capital to Rs 3.4 bn. In June 2007, NIB acquired majority shares of Pakistan Industrial Credit & Investment Corporation Ltd. (PICIC) with the aim of merging PICIC and its subsidiary PICIC Commercial Bank Limited (PCBL) into NIB. The acquisition was financed through the country's largest private sector rights issue, with resultant increase in NIB's paid up capital to Rs. 22.0 bn.

With this merging, the total assets of NIB swelled upto Rs. 176.7 bn, advances to Rs. 82.2 bn and deposits to an amount of Rs. 116.7 bn as the seventh largest commercial bank in terms of distribution of network and become a top 10 bank in terms of largest Balance Sheet size & capital. The merger also resulted in making PICIC Asset Management Company (PICIC AMC) managing almost Rs. 20 bn which is now a subsidiary of NIB. And at that time an affiliated "PICIC Insurance was also established. NIB already has a shareholding in NAFA (National Fullerton Asset Management Company), an Asset Management Company (AMC) whose shareholders also include National Bank of Pakistan and Fullerton Fund Management Company; thus NIB Groups asset management business has also increased, while it has diversified into the insurance business as well.

Temasek Holdings of SingaporeTemasek is the investment arm of the Govt. of Singapore and also a premier international investor in the process of establishing pan Asian banking presence. Temasek Holdings is an investment company owned by the government of Singapore. With an


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A Financial Analysis of NIB Bank Limited!international staff of 380 people, it manages a portfolio of about US $142 billion, focused primarily in Asia. It is an active shareholder and investor in - financial services, telecommunications & media, technology, transportation, industrials, life sciences, consumer, real estate, energy & resources. In addition, the Government of Singapore has another investment arm, the substantially larger Government Investment Corporation (GIC), which invests primarily the country's foreign reserves. It has also attained perfect scores quarterly on the "Transparency Index for Sovereign Wealth Fund". (Sovereign Wealth Fund which give authority to organization to sell their assets to raise cash for new investments and doesn't require the government approvals). According to 2008 data, the financial position of Temasek Holdings was that: Revenue = $ 83.284 billion = = $ 22.474 billion $ 185 billion

Net Income Total Assets

The Temasek Holdings owns stakes in many large foreign companies, including Standard Chartered, Bank of China, China Construction Bank, ICICI Bank, Global Crossing, as well as many of Singapore's largest companies, such as SingTel, DBS Bank, Singapore Airlines, PSA International, SMRT Corporation, Singapore Power, Neptune Orient Lines and Media corp. It also holds investments in public icons like the Singapore Zoo and Singapore Pools, the only legal betting company in Singapore. About half of its managed assets are external to Singapore and Temasek-linked companies (TLCs) also hold an extensive global portfolio, such as SingTel's ownership of Australian telco Optus, and Singapore Airlines' 49% stake in Virgin Atlantic.


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A Financial Analysis of NIB Bank Limited!Although 75% of Temasek's holdings are in Singapore, it has set a target of eventually reducing this to only one-third. Another one-third will be in developed markets and the final third is planned for investment in developing economies. In March 2005 Temasek Holdings of Singapore acquired 25% shareholding in NIB Bank, through Bugis Investments (Mauritius) Pte Limited. This shareholding was further enhanced to over 70% in June 2005 by an increase in NIB's paid up capital to Rs 3.4 bn. The Bugis Investments (Mauritius) Pte Limited is the indirect subsidiary of Temasek Holdings of Hongkong (Singapore).

Credit Agricole Indo Suez (the Global French Bank)The Credit Agricole Corporate and Investment Bank (Credit Agricole CIB, formerly Calyon) are Credit Agricole's corporate and investment banking entity with a staff of 13,000 employees in 58 countries. Credit Agricole CIB is active in a broad range of capital markets, investment banking and financing activities. Its activities are grouped into two major divisions: the Capital Markets & Investment Banking Division and the Financing Division. In September 2007, a Credit Agricole CIB New York trader lost the firm US $ 320 Millions. He had taken unusual positions beyond authorization and delegation. The Credit Agricole lost US $ 1.1 bn in the fourth quarter of 2007, primarily as a result of the US $ 3.3bn charge on losses attributed to the credit crisis.


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IFIC Bank Limited (in Pakistan)IFIC was setup as a joint government-private finance company in 1976 at Dhaka. The founder of this bank is Mr. Mohammad Lutfar Rahman 7 Director is Mr. Abu Tahir Mohammad Golam. The government held a 49% stake in the firm. On June 24, 1983, IFIC became a private commercial bank. While the bank is currently listed on the Dhaka Stock Exchange the government retains a 40% stake in it to this day. IFIC has over 82 branches in Bangladesh & 5 SME Centre and also has number of branches worldwide. In 1981, IFIC invested in Pakistan on the diplomatic basis but after a lot of hard work this bank cant survive and merged them into NIB.

PICIC Commercial BankPICIC Commercial Bank Limited was incorporated in 1993 as Schn Bank Limited and commenced its business on 4 April 1994, with a paid-up capital of PKR 500 Million. In 1997, Al Ahlia Portfolio Securities Company, Sultanate of Oman acquired the major shareholding and changed Banks name to Gulf Commercial Bank. Thereafter, in February 2001, the Banks management again changed when Pakistan Industrial Credit and Investment Corporation acquired 60% controlling shares from Al-Ahlia and changed its name to PICIC Commercial Bank in May 2001. Since acquisition, the Bank performance has turned around and it's now the fastest growing private commercial bank in Pakistan. At the time of takeover by PICIC in February 2001, the Bank had only 15 branches. Now it is the 6th largest bank in Pakistan. On December 31, 2007, the operations of PICIC Commercial Bank were


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A Financial Analysis of NIB Bank Limited!merged with and into NIB Bank Ltd. PICIC has over one hundred and twenty branches in over forty four cities including the main cities and towns of Pakistan.


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Corporate Governance Code of ConductCorporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, the board of directors, employees, customers, creditors, suppliers, and the community at large. According to the Code Conduct of Corporate Governance issued by the Securities & Exchange Commission of Pakistan, NIB Bank Limited prepared all of their financial statements with regard to the corporate and financial reporting framework to meet with the requirement of the Code as:

The financial statements prepared by the management of the NIB present fairly its state of affairs, the result of its operations, cash flows and changes in equity Proper books of account of the NIB have been maintained Accounting policies have been consistently applied in the preparation of financial statements and accounting estimates are based on reasonable and prudent assessments International Accounting Standards, as applicable in Pakistan, have been followed in the preparation of financial statements There are no doubts upon the Bank's ability to continue as a going concern


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A Financial Analysis of NIB Bank Limited!There has been no material departure from the best practices of corporate governance as detailed in the listing regulations of the Stock Exchanges of Pakistan There are no statutory payments on account of taxes, duties, levies and charges which are outstanding, except which are as disclosed in the financial statements


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Executive Members & DirectorsBoard of DirectorsName Francis Andrew Rozario Syed Aamir Zahidi Tejpal Singh Hora Chia Yew Hock Wilson Sng Seow Wah Mahmudul Huq Bhuiyan Asif Jooma Status Chairman Director Director Director Director Director Director

Board of Audit CommitteeChia Yew Hock Wilson Syed Aamir Zahidi Mahmudul Huq Bhuiyan Chairman Member Member


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Company Secretary Chief Financial Officer AuditorsCo

Yameen Kerai Rayomond Kotwal M/s. KPMG Taseer Hadi & M /s. Mandviwalla & Zafar

CA + Legal Advisor


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Products & ServicesFollowing of the products & services are delivered to customers by NIB Bank Limited Retail Banking Retail Banking @ Alternative Distributive Channels Value Added Services Corporate & Investment Banking Group (CIBG) SME & Commercial Banking Treasury & Capital Market Groups Treasury & Capital Market Groups @ Money Market Treasury & Capital Market Groups in Primary Dealers NIB IS offering several kinds of products, details of which are as under: Khazana Daily Product Account Azadi Saving Account

Retail BankingRetail banking refers to banking in which banking institutions execute transactions directly with consumers, rather than corporations or other banks. Most of the time services offered under retail banking include savings and transactional accounts, mortgages, personal loans, debit cards, credit cards, and so forth. The Retail Banking Service NIB products and services made NIB we believe that people who understand your needs better. offers to customers a wide array of available in the local community. At live and work in proximity with you Being embedded within your local


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A Financial Analysis of NIB Bank Limited!community, we are aware of your daily challenges and are prepared to provide you financial solutions. So come bank at NIB Retail Banking because we know that nobody understands you better than your Retail Banker.

Retail Banking @ Alternative Distributive ChannelsOur customers are enjoying two types of alternatives to utilize our services in efficient manner as: ATM Phone Banking

ATM An automated teller machine

(ATM), also known as an automated banking machine (ABM) or Cash Machine, is a computerized telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. The NIB Bank provides state of the art banking facilities to their valued customers. NIB ATM cards give the services to access of bank account, anywhere anytime from over 4400 ATMs network across Pakistan. The customer can withdraw cash from their account, transfer funds to any 1-Link member bank account, make funds transfer within NIB Bank, pay their utility bills and mobile bills, recharge their prepaid connections, purchase electronic prepaid vouchers and enjoy the convenience of these products. The customers also print out their mini bank statement via ATM.


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A Financial Analysis of NIB Bank Limited! Phone Banking The NIB Phone Banking is a distinctive andefficient 24/7 Non-Stop Banking Service available for NIB customers. It is a virtual medium for existing and prospect customers to fulfill their day to day financial needs through the telephone or cell phone at this UAN Extension: 0800-00039. This helpline will provide a lot of benefits to their customers in efficient way.

Value Added Services (Direct Pay)A Value Added Service (VAS) is popular as a telecommunications industry term for non - core services, or in short, all services beyond standard voice calls and fax transmissions. However, it can be used in any service industry, for services available at little or no cost, to promote their primary business. For mobile phones, while technologies like SMS, MMS and GPRS are usually considered value-added services, a distinction may also be made between standard (peer-to-peer) content and premium-charged content. NIB Direct Pay is a convenient bill payment and funds transfer facility whereby anyone can instruct instant payment of their bills and transfer funds from NIB bank account to another account. The customer can easily pay their utility bills or transfer their funds through ATMs and/or Phone Banking 24 hours a day, 7 days a week.

Corporate & Investment Banking Group (CIBG)

orporate & Investment Banking Group (CIBGAn Analytic Approach by Ali Raza Sahni for NIBs Future ///

Corporate Banking Investment Banking Financial Institution

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Corporate Banking A Corporate Baking or Commercial

Banking provides the services of financial intermediary and a bank. This type of banking also called Business Banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits Corporate Banking offers a full spectrum of banking products, from vanilla debt to more structured and solution-driven transactions, to meet the operational, financial and capitalraising needs of top-tier corporations and institutions.

Investment Banking According to the concept of InvestmentBanking, the financial institution assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provides ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities. Unlike commercial banks and retail banks, investment banks do not take deposits. Investment Banking of NIB includes: Advisory services on transactions such as mergers and acquisitions, divestment, privatization, corporate restructuring, debt rescheduling, business modeling etc and raising money by issuing and selling securities in the capital markets.

Financial Institution In financial economics, a financialinstitution is an institution that provides financial services for its


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A Financial Analysis of NIB Bank Limited!clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are highly regulated by government. Financial Institutions & Correspondent Banking (a relationshipentered into between a small bank and a big bank in which the big bank provides a number of deposit, lending, and other services) department

coordinates the transactions between NIB and the other Financial Institutions (FIs) locally, regionally and internationally. The FIs department ensures that NIB maintains a competitive and profitable relationship with other financial institutions.

SME & Commercial BankingSmall Medium Enterprises (SME) and Commercial Banking Group (SME & C) began its operations in June 2006. Within a short span of time, (SMEC & C) has developed business solution expertise in many areas. These include and are not limited to necessary infrastructure, management information systems and a competent human resource capability of 1000 plus employees. Through these resources, we offer a diverse range of products catering to private sector enterprises having an annual sales turnover between PKR 30 Million to PKR 1 Billion. We at SMEC aim to become a dominant player in Pakistan with an aggressive growth trajectory fortified with teamwork and full inculcation of sales and credit programs. At (SME & C) we know that delivering your everyday banking needs in the right way is critical to your success. We can do this and much more for you, with people who understand your business needs and ambitions. They also provide you with award-winning service and solutions. We are committed to helping your business succeed today and in the future. Once your business is established and growing, you need to work with people who understand your business banking needs and can help you achieve your ambitions. Talk to us, well support you every step of the way.


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A Financial Analysis of NIB Bank Limited!In recent years SMEC has concentrated on growth through improving service quality, investment in technology and people, utilizing its extensive branch network of 32 branches across Pakistan. We at SMEC offer you the safest option to place your deposit (CA, SA & TD) at our branches, as we proudly claim to be the strongest bank of Pakistan with the highest paid up capital of 40 Billion. SME & C offers you Chain Management Facility where you can speed up your business transactions with your buyers and suppliers via our counter and online transactional features coupled with superior service through any NIB branch across Pakistan. We at SMEC provide you one window solution, where you can not just avail loans to cater your regular business or trade requirements but you can also enjoy chain management benefits through our extensive branch distribution footprints.

Treasury & Capital Market GroupsIn todays dynamic world with its financial complexities, it is imperative that you have access to innovative, cutting edge financing and risk management solutions that are tailor-made to suit your needs, and an attractive range of diversified investment options backed by world-class expertise and experience. NIB Bank Limited boasts one of the finest Treasuries in Pakistan, providing corporate and individual clients with a wide selection of products ranging from the traditional to the customized. From products that meet the demands of liquidity, cash flow management, interest rate fluctuations and risk management etc. to specialized Investment Services, we have exactly what youre looking for. Our expert team gives you solutions that are efficient and accurate, matched by state-of-the-art technology that provides the very latest tools for prompt execution, seamless delivery, and a worldclass service.

Treasury & Capital Market Groups @ Money MarketAn Analytic Approach by Ali Raza Sahni for NIBs Future ///

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A Financial Analysis of NIB Bank Limited!NIB Bank Limited Money Market Desk Manages Liquidity and cash flow, Funding retail and corporate book, Maintains and manages the liquidity while dealing in Inter bank market as well as lending / borrowing swaps & other derivative tools.

Treasury & Capital Market Groups in Primary DealersA primary dealer is a bank or securities broker - dealer that may trade directly with the central bank of any state. Such firms are required to make bids or offers when the central bank conducts open market operations, provide information to the central bank open market trading desk, and to participate actively in States Treasury Securities Auctions. They consult with both the State Treasury and the central bank about funding the budget deficit and implementing monetary policy. Many former employees of primary dealers work at the Treasury, because of their expertise in the government debt markets, though the Fed avoids a similar revolving door policy. In July 2009, The NIB acquired the status of Primary Dealer (PD) granted by State Bank of Pakistan (SBP). We are now am4ong the 10 selective financial institutions that enjoy this prestigious status. The status is granted on basis of a Financial Institutions contribution towards Inter-bank Fixed Income Securities Market as an active market player which assessed by the participants ability to quote competitive two-way prices as well as the trading volume it generates. We may now participate on behalf of other financial institution as well as our esteemed corporate clients. Furthermore, being a PD has created depth in our inventory of risk-free assets enhancing our appetite to service large orders placed by our customers.

Investments CriteriaInvestments are made by the banks in order to secure themselves and earn some profit from it. Generally these investments


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A Financial Analysis of NIB Bank Limited!are done in government securities and shares. NIB bank invested its money in the following types of securities as: Market treasury Bills Preference Shares Ordinary Shares of Listed Companies Pakistan Investment Bonds Term Finance Certificates Investments in Associates

The Market Treasury Bills and Pakistan Investment Bonds are held by the State Bank of Pakistan which is eligible for rediscounting. The market treasury bills mature within 3 to 12 months yielding 8% to 9% markup while the Pakistan Investment Bonds matures in 7 to 8 years carrying 8% of markup per annum.

Year2004 2005 2006 The 2007 2008

Investment1 Billion 5 Billion 6.5 Billion 35 Billion 40 Billion

investments of NIB especially in the government papers were round about 1 billion in 2004 it is just because that at that time it was a new bank just starting off its business however in the next year 2005 the NIB bank rose its investments to 5 billion and kept on rising it in 2006 as it were 6.5 billion approximately. Similarly we can see that there is a huge fluctuation in 2007 and 2008 its just because of the fact that the NIB bank acquired the PICIC commercial bank. But however these investments were declined from 2007 to 2008 from 40 billion approx to 35 billion approx.


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Departmentation in BranchesMost of the branches of NIB divided into two portions, i.e. Branch Banking and Consumer Banking. Moreover, operations, liabilities and customer services are these departments, which come under branch banking. While the other departments like compliance, process control, credit initiation, collection and fraud risk and management are generally considered under consumer banking.

Internal Control SystemManagement acknowledges its responsibility for establishing and maintaining a system of internal control directly related to and designed to provide reasonable assurance to achieve the following objectives: Efficiency and effectiveness of operations Compliance with applicable laws and regulations Reliability of financial reporting The bank is continuously adding to its internal control systems by enhancing the quality of processes, staff and IT infrastructure and will continue to do so to strengthen internal controls as it grows its business volumes and activities. During the year, the management has broadly evaluated the internal control system in the light of internal control guidelines issued by the State Bank of Pakistan, and is pleased to make the following disclosures on the components of the internal control system.


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Risk Management FrameworkThe acceptance and management of financial risk is inherent to banking business activities. It involves the identification, measurement, monitoring and controlling of Risk. In accordance with the Risk Management guidelines issued by the SBP, an Integrated Risk Management Group in the Bank formulates risk management Policies and Procedures in line with Banks defined strategies and to monitor the following areas: a) Credit Risk Management b) Market and Liquidity Risk Management c) Operational Risk Management

Credit Risk Management (CRM) CRM is viewed as an ongoing

activity where credit risks are regularly identified and assessed. It determines the quality of the credit portfolio and assists in balancing risk and reward. To manage credit risks appropriately, credit committees at different locations have been established.

Market Risk Management (MRM) Market Risk Management isa control system, which allows management to closely supervise and monitor risks caused by movements in market rates or prices such as interest rates, FX rates, equity prices, credit spreads and / or commodity prices, resulting in a potential loss to earnings and capital.

Operational Risk Management (ORM) Operational risk is therisk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The Bank has written and implemented its Operational Risk Policy duly approved by the


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A Financial Analysis of NIB Bank Limited!Board. The Bank has also implemented tools for identification, monitoring, and management of key operational risks and has also implemented a template for collecting Operational loss.


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Credit Rating of NIBRecognizing the progress that NIB has made and the strength of the Banks capital base, PACRA maintained NIBs long term rating at AA- (Double A minus) and short term rating at A1+ (A one plus) in June 2009, even in this difficult environment. The rating on NIBs term finance certificates issued in March 2008 was also maintained at A+ (A plus).

Financial Management ObjectivesFinancial manager plays a vital role in any organization regarding financial matters. At NIB, the financial manager is responsible for following duties as: Policy making to achieve organizational goals Making investment decisions Making financial decisions


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A View on Financial Sheets


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A Financial Analysis of NIB Bank Limited!The Balance SheetASSETS Cash & Balances with Treasury Banks Balances with other banks Landings to Financial Institutions Investments Advances Operating Fixed Assets Intangible Assets Deferred Tax Assets Other Assets 974,659 2,085,141

2004

2005

2006

2007

2008

2009

(Rupees in 000) 2,928,404 10,318,722 9,355,104 8,834,275

309,218

1,966,118

1,362,497

1,401,796

793,843 12,459,62 1 35,176,82 3 80,344,19 3 3,702,426 26,664,43 8 6,533,228 3,879,439 178,909, 115

3,683,783

1,812,907

2,270,000

2,600,000

4,753,113

5,681,887

1,187,529 11,737,27 5 129,389 0 0 406,486 16,557,4 63

5,129,285 19,622,92 9 368,551 0 0 576,691 32,018,7 15

6,594,036 31,052,16 9 622,216 0 127,158 1,142,363 46,428,8 43

40,498,840 82,160,074 30,800,135 0 3,366,766 3,353,958 176,653,4 04

62,432,977 84,021,406 3,114,632 26,943,271 3,474,384 6,932,348 205,118,9 63

LIABILITIES Bills Payable Borrowings Deposits & other Accounts 98,620 4,159,194 10,648,57 0 274,325 4,547,096 22,554,27 4 215,769 9,164,121 30,566,54 0 2,110,211 16,669,412 11,671,219 1,432,084 23,651,36 6 104,586,1 67 1,574,207 62,523,365 93,919,805


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A Financial Analysis of NIB Bank Limited!The Income StatementMark-Up/Return/Interest Earned Mark-Up/Return/Interest Expensed Net Mark-Up/Interest Income Provision against NonPerformaning Loans & Advances Provision for Diminution in the Value of Investments Bad Debts written off directly 2004 2005 2006 2007 2008 2009

(Rupees "000") 803,54 2 412,68 0 390,86 2 (73,255 ) 0 0 (73,255 ) Net Mark-Up/Interest Income after Provisions 317,60 7 1,716,91 7 1,118,95 7 597,960 3,499,27 8 2,452,19 2 1,047,08 6 269,583 6,999,88 8 4,995,95 5 2,003,93 3 1,494,80 1 0 0 1,494,80 1 509,132 15,201,69 1 10,799,81 6 4,401,875 18,272,3 63 12,872,3 57 5,400,00 6 524,505

120,931

8,833,641

(29,643) 0 91,288 506,672

0 0 269,583 777,503

809,387 14,372 9,657,400 (5,255,52 5)

603,426 67,398 1,195,32 9 4,204,67 7

NON-MARK-UP/INTEREST INCOME Fee, Commission & Brokerage Income Dividend Income Income from dealing in Foreign Currencies Gain on Sale of Securities Unrealized Gain on Revaluation of Investments classified as held-for-trading 40,418 16,015 25,596 12,806 0 91,707 16,668 109,145 4,040 0 179,994 14,528 208,627 222 0 249,020 13,723 225,235 24,021 0 678,970 1,047,259 436,330 194,310 0 729,953 260,103 72,162 598,800 0


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Ratio Analysis of NIBProfit before Tax Ratio (PBT)PBT Ratio=PBTGross Mark Up Income 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 31333 / 390862 100 27001 / 597960 100 29992 / 1047086 100 (571207) / 2003933 100 (109978902) / 4401875 100 644071 / 5400006 100

% Age Ratio 8.02% 4.52% 2.86% (28.50%) (249.85 %) 11.93%


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Income to Expense Ratio (I/E)Income-to-Expense=Total ExpensesTotal Revenues Incomes 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 810521 / 915109 100 1832011 / 1953076 100 3675874 / 3967370 100 7002916 / 7598659 100 18964057 / 17623567 100 18114796 / 19954196 100

% Age Ratio 88.571% 93.801% 92.653% 92.160% 107.606 % 90.782%


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Earning per Share Ratio (EPS)EPS=Net Profit after TaxNo.of

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 122609000 / 122904100 100 103771000 / 336152177 100 125939000 / 336152177 100 (350557000) / 2201796759 100

% Age Ratio 99.760% 30.870% 37.465% (15.921 %)

(7474679000) / 2843727076 (262.848 100 %) 691048000 / 4043727076 100 17.089%

Outstanding Shares 100


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Return on Equity Ratio (ROE)ROE=Net Income after TaxShareholder Equity 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 122609 / 1363848 100 103771 / 4212875 100 125937 / 4331875 100 (350557) / 36592034 100 (7474679) / 39698508 100 691048 / 41528245 100

% Age Ratio 8.99% 2.46% 2.91% (0.96%) (18.33%) 1.66%


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Return on Assets Ratio (ROA)ROA=Net IncomeAverage Total Assets 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 122609 / 16557463 100 103771 / 24288089 100 125937 / 39223779 100

% Age Ratio 0.741% 0.427% 0.321%

(350557) / 111538472 (0.314%) 100 (7474679) / 177890778 100 691048 / 193514039 100 (4.202%) 0.357%


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Interest to Expense RatioInterest to Expense Ratio Total Expense Ratio=Interest ExpenseTotal Expense 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 412680 / 810521 100 1118957 / 1823011 100 2452192 / 3675874 100 4995955 / 7002916 100 10799816 / 18964057 100 12872357 / 18114796 100

% Age Ratio 50.915% 61.380% 66.710% 71.341% 56.949% 71.060%


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Interest to Income RatioInterest to Income Ratio Total Income Ratio=Interest IncomeTotal Income 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 803542 / 915109 100 1716917 / 1953076 100 3499278 / 3967370 100 6999888 / 7598659 100 15201691 / 17628567 100 18272363 / 19954196 100

% Age Ratio 87.808% 87.908% 88.201% 92.120% 86.258% 91.572%


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Return on Deposits Ratio (ROD)ROD=Net Profit after TaxTotal Deposits 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 122609 / 10648570 100 103771 / 22554274 100 125937 / 30566540 100

% Age Ratio 1.151% 0.460% 0.412%

(350557) / 116671219 (0.300%) 100 (7474679) / 104586167 100 691048 / 93919805 100 (7.147%) (0.736%)


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Return on Advances RatioReturn on Advances=Net Profit after TaxTotal Advances 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 122609 / 11737275 100 103771 / 19622929 100 125937 / 31052169 100 (350557) / 82160074 100 (7474679) / 80344193 100 691048 / 84021406 100

% Age Ratio 1.0446% 0.529% 0.406% (0.427%) (9.303%) 0.822%


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Advances to Deposits Ratio (ADR)ADR=Total AdvancesTotal Deposits 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 11737275 / 10648570 100 19622929 / 22554274 100 31052169 / 30566540 100 82160074 / 116671219 100 90344193 / 104586167 100 84021406 / 93919805 100

% Age Ratio 110.224 % 87.003% 101.589 % 70.420% 76.821% 89.461%


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Debt RatioDebt Ratio=Total LiabilitiesTotal Assets 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 27805840 / 32018715 100 15193615 / 16557463 100 42096968 / 46428843 100 140061370 / 176653404 100 139210607 / 178909115 100 166590718 / 208118963 100

% Age Ratio 86.842% 91.763% 90.670% 79.286% 77.811% 80.046%


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Net Profit Margin Ratio (NPM)NPM=Net Profit after TaxTotal Income 100

Yea r 200 4 200 5 200 6 200 7 200 8 200 9

Calculation 122609 / 915109 100 103771 / 1953076 100 125937 / 3967370 100 (350557) / 7598659 100 (7474679) / 17623567 100 691048 / 19954196 100

% Age Ratio 13.398% 5.313% 3.174% (4.613%) (42.413 %) 3.463%


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The Financial Analysis by Business RecorderRecent Financial ResultsNIB Bank had shifted focus to SME and consumer segments after the merger with PICIC. This strategy in recent times has backfired due to the worsening economic situation in Pakistan along with the recent floods whose aftermath will be felt amongst all sectors for some time to come. Therefore, the major detrimental factor for the bank in 1H10 had been the heavy increase of NPLs, especially in the SME sector. Mark-up earned during 1H10 was 4% lower than the same period in 2009. This was primarily due to mark-up reversals related to the increased NPLs. Mark-up expensed in 1H10 increased by 4% due to increased borrowings pertaining to securities activities. The net markup income was lower by 98%. The lower net mark-up income was offset to some extent by increased non-mark-up income which was higher by Rs 331m from the same period last year mainly due to better earnings from foreign exchange activities and the sale of the bank s shares in National Fullerton Asset Management Company Limited. Administrative expenses increased by Rs 650 million in 1H10 over 1H09 due to the full impact of depreciation and maintenance costs of the new technology platforms along with the effect of high


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A Financial Analysis of NIB Bank Limited!inflation in the country. The charge for provisions was Rs 1,826 million in 1H10 compared to a net reversal of Rs 479 million in 1H09. While portfolios deteriorated in all segments, the biggest increase between the two periods was in the SME segment. Total deposits grew by Rs 5,384 million between December 2009 and June 2010, showing an increase of 5.7%, mostly on savings account and deposits by financial institutions. Investments declined by 19%, while the advances increased marginally by 5%. NIB faced a loss after Taxation of Rs 1.9 billion as compared to a PAT of Rs 579 million in the same period last year.

Banking Industry in FY 09As a consequence of reducing inflation, the State Bank of Pakistan eased its monetary policy with a 250 bps lowering of the discount rate during 2009. Consequently market rates fell sharply during the first half of the year before stabilizing over the last six months. Liquidity is expected to remain tight with higher private sector credit off take and continued borrowing by public sector. Nevertheless, the results of stress tests reflect system s strong capacity to endure extraordinary shocks in major risk factors and avert the emergence of any systemic risk. Although, heightened credit risk due to general slackened economic environment, showed slight improvement, but overall economic conditions, power supply situation, and security environment remained fragile for the period.

InvestmentsThe asset mix of the banking system shifted towards the investments due to the ongoing economic slowdown in economy.


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A Financial Analysis of NIB Bank Limited!During the quarter under review, the investments posted a strong increase of 10 percent. The investment portfolio of banks particularly investments in government papers and bonds of PSEs grew significantly and took the major share of the increase in banks asset base.

DepositsDeposits of the banking system posted a strong over-the-quarter growth of 6.8%. The banking system has been facing a strong competition from Central Directorate of National Savings (CDNS) schemes in mobilizing deposits but flow of funds to CDNS has somewhat pacified which helped banks to attract substantial growth in their deposit base.


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AdvancesThe advances of the banking system registered healthy growth of 4 percent over the December-09. Due to low aggregate demand in the economy, high borrowing costs on account of tight monetary policy, and the increased credit risk in the economy, banks lending to private sector declined on YoY basis.

Profitability MarginThe profitability of the banking system improved over the last year mainly due to high net interest and non-interest income. However, high provisions and increasing administrative expenses impeded the overall profitability. The profitability, however, varies across banks. Improvement in ROA for banks with large assets base as opposed to small sized banks indicates that earning performance of the banking system is concentrated towards large sized banks with small sized banks under stress.

Net Profit & Losss (NPLs)The growth in NPLs substantially decelerated during the quarter under review; 2.5 percent QoQ growth to Rs 432 billion. The slowdown in loan infection rate preserved the banks earnings from significant dint, which has been the hallmark of last few quarters. Infected portfolio increased marginally by 2 percent during December-09 due to decrease in NPLs of some banks.


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The Index Financial Analysis


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A Financial Analysis of NIB Bank Limited!The Balance SheetASSETS Cash & Balances with Treasury Banks Balances with other banks Lendings to Financial Institutions Investments Advances Operating Fixed Assets Intangible Assets Deferred Tax Assets Other Assets 5.887 6.512 6.307 5.841 5.229 4.307

2004

2005

2006

2007

2008

2009

1.868

6.141

2.935

0.794

0.444

1.796

10.949 7.172 70.888 0.781 2.455 1655746 3.000

7.090 16.020 61.286 1.151 0.000 0.000 1.801 32018715. 000

5.600 14.202 66.881 1.340 0.000 0.274 2.460 46428843. 000

2.691 22.926 46.509 17.435 0.000 1.906 1.899 176653404. 000

6.964 19.662 44.908 2.069 14.904 3.652 2.168 178909115. 000

2.770 30.437 40.962 1.518 13.135 1.694 3.380 205118963. 000

LIABILITIES Bills Payable Borrowings Deposits & other Accounts Sub - Ordinate Loans Liabilities against Assets subject to 0.596 25.120 64.313 0.857 14.201 70.441 0.000 0.465 19.738 65.835 0.000 1.195 9.436 6.607 0.000 0.800 13.220 58.458 2.235 0.767 30.482 45.788 1.949

0.004 0.000 An Analytic Approach by 0.000Raza 0.000 Ali Sahni for NIBs Future /// 0.000

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A Financial Analysis of NIB Bank Limited! The Income Statement2004 2005 2006 2007 2008 2009

(Rupees "000") Total Revenues 915,1 09.00 0 87.80 8 45.09 6 42.71 2 (8.005 ) 34.70 7 1,953,0 76.000 87.908 57.292 30.616 6.192 (1.518) 0.000 25.942 3,967,3 70.000 88.201 61.809 26.392 6.795 0.000 0.000 19.597 7,598,6 59.000 92.120 65.748 26.372 19.672 0.000 0.000 6.700 17,623, 567.000 86.258 61.281 24.977 50.124 4.593 0.082 (29.821) 19,954, 196.000 91.572 64.510 27.062 2.629 3.024 0.338 21.072

Mark-Up/Return/Interest Earned Mark-Up/Return/Interest Expensed Net Mark-Up/Interest Income Provision against Non-Performaning Loans & Advances Provision for Diminution in the Value of Investments Bad Debts written off directly Net Mark-Up/Interest Income after Provisions

NON-MARK-UP/INTEREST INCOME Fee, Commission & Brokerage Income Dividend Income Income from dealing in Foreign Currencies Gain on Sale of Securities Unrealized Gain on Revaluation of Investments classified as held-for-trading Other Income Total Non-Mark-Up/Interest Income 4.417 1.750 2.797 1.399 1.828 12.19 4.696 0.853 5.588 0.207 0.000 0.747 12.092 4.537 0.366 5.259 0.006 0.000 1.631 11.799 3.277 0.181 2.964 0.316 0.000 1.142 7.880 3.853 5.942 2.476 1.103 0.000 0.369 13.742 3.658 1.304 0.362 3.001 0.000 0.104 8.428


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The Common Size Financial Analysis


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A Financial Analysis of NIB Bank Limited!The Balance SheetASSETS Cash & Balances with Treasury Banks Balances with other banks Lendings to Financial Institutions Investments Advances Operating Fixed Assets Intangible Assets Deferred Tax Assets Other Assets 5.887 1.868 10.949 7.172 70.888 0.781 0.000 0.000 2.455 100 LIABILITIES Bills Payable Borrowings Deposits & other Accounts Sub - Ordinate Loans Liabilities against Assets subject to Financial Lease Deferred Tax Liabilities Other Liabilities 0.596 25.120 64.313 0.000 0.000 0.597 1.137 0.857 14.201 70.441 0.000 0.000 0.008 1.336 0.465 19.738 65.835 0.000 0.000 0.000 4.632 1.195 9.436 6.607 0.000 0.004 0.000 2.606 0.800 13.220 58.458 2.235 0.000 0.000 3.098 0.767 30.482 45.788 1.949 0.000 0.000 2.231 6.512 6.141 7.090 16.020 61.286 1.151 0.000 0.000 1.801 100 6.307 2.935 5.600 14.202 66.881 1.340 0.000 0.274 2.460 100 5.841 0.794 2.691 22.926 46.509 17.435 0.000 1.906 1.899 100 5.229 0.444 6.964 19.662 44.908 2.069 14.904 3.652 2.168 100 4.307 1.796 2.770 30.437 40.962 1.518 13.135 1.694 3.380 100 2004 2005 2006 2007 2008 2009


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Lifetime Financial Performance of NIB (from 2003 10)In 2009 NIB declared a profit after tax of Rs 691 million on an unconsolidated basis, a significant improvement over 2008. This improvement is a reflection of the steps taken by the bank in 2008 when it brought in additional capital of Rs 12 billion and took a conservative provisioning approach to safeguard against future economic volatility. These results have been achieved through better performance in all areas; loan and low cost deposit growth, reduction in cost of funds and tight control over provisions and operating expenses. On a consolidated basis, NIB delivered a profit after tax of Rs 1,494 million. The difference of Rs 800 million between the unconsolidated and consolidated results is primarily due to improvements in the value of the funds of PICIC Asset Management Company as a result of the recovery in the equity markets.


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A Financial Analysis of NIB Bank Limited!NIB now has 223 branches in 60 cities across the country, serving over 600,000 customers. 222 branches are dedicated to the Bank s Retail, SME and Small Businesses, in which 120,000 new customers were added and new loans worth nearly Rs 10 billion, were disbursed during 2009. The bank also increased its lending to top tier corporate and public sector customers, to whom over Rs 11 billion of loans were disbursed. Consequently, loans in the bank s core segments grew by 24% over 2008. NIB succeeded in reducing its cost of funds by 266 bps over the year, by adding Rs 10 billion in current and savings accounts which now form 59% of the deposit base, up from 44% in 2008. At the same time, the Bank achieved a planned reduction of Rs 28 billion of expensive term deposits which it had taken at the end of 2008 and in early 2009. As a result total deposits reduced by Rs 10 billion. The bank continues to focus on generating lower cost deposits as a cornerstone of its strategy and plans to launch innovative deposit products in 2010. Net mark-up income in 2009 increased by 23% over 2008 as a result of better quality loan growth and improvement in spreads. Conservative approach in provisioning against NPLs leads to a diminution of 94% in provisioning done against NPLs in FY 09. Provisioning stood at Rs 524.5 million in FY09 compared to Rs 8.83 billion in 2008. Under the head of Non-markup income, fee, brokerage and commission income registered a nominal increase of just 8% in 2008. But bank achieved substantial capital gains increased by 208% over 2008 both in the debt and equity markets through leveraging market opportunities however these were offset by reduced foreign exchange income caused by higher premiums and lower market volatility. The income from foreign exchange reduced substantially by 83% in FY09 as compare to FY08. Dividend income was considerably high in FY08, also reduced by 75% in FY09. Non-mark-up income was thus maintained at the previous year s levels excluding the impact of a 1-time dividend of Rs 750 million received from PICIC Asset


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A Financial Analysis of NIB Bank Limited!Management Company in 2008. To match the non interest income, non interest expense lessened by 36% mainly on the back of 17% decline in administrative expenses and 138% reduction in other expenses incurred by the bank in FY09, thereby making a positive impact on the bottom line of the bank. NIB Bank s Total Assets size grew from Rs 178.9 billion in 2008 to Rs 208. 1 billion in FY09, increasing by 16% YoY basis. Although advance increased merely by 5%, investments on the other hand rose by 74% to Rs 62.4 billion in FY09. Major investments of Rs 42 Billion took place in Market T-bills accompanied by PIBs, ordinary shares, sukuk bonds, Modaraba Certificates and TFCs. This depicts a shift in the asset mix of the bank, in compliance with the industry trend, which focused more on investments in government papers and securities as compare to riskier advances. Furthermore, sluggish economy coupled with the low demand also caused the advances to remain somewhat stagnant. Total Assets growth in FY09 is also backed by increases in other assets, which grew by 79% as compared to 2008. Over the years assets have shown a positive growth with a landmark increase of 281% in FY07 to Rs 176.65 billion and subsequently an increase of Rs 2 billion in FY08. Gross advances increased by mere 2% in the period 2009 to an amount of Rs 100 billion. Net advances stood at Rs 84.02 billion, which is 5% higher than FY08 (Rs 80.3 billion) but it has to be observed that in reality the Total Advances surged by Rs 4 billion. The decrease in Net Advances owes to sluggish economy, lower demand and cautious stance by bank to protect against risk of NPLs in new advances. Short-term advances remained similar to FY08 posting a decline of 1.92% but long-term advances registered an impressive increase of 11.24% in FY09 as compare to FY08. The composition of advances was more inclined towards textile and wholesale sector followed by individuals and service industry. The


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A Financial Analysis of NIB Bank Limited!amount of advances to different sectors in FY09 remained similar to last year with no major increase or decrease in any of the categories. NIB succeeded in reducing its cost of funds by 266 bps over the year, by adding Rs 10 billion in current and savings accounts which now form 59% of the deposit base, up from 44% in 2008. At the same time, the Bank achieved a planned reduction of Rs 28 billion of expensive term deposits which it had taken at the end of 2008 and in early 2009. As a result total deposits reduced by Rs 10 billion. Total Deposits shrunk by 10% and stood at Rs 93.9 billion as compared to Rs 104.5 billion in FY09. Disaggregate fixed deposits declined by nearly 36%, while the savings account and current account (nonremunerative) increased by 24.5% and 19.2% respectively in FY09. The bank continues to focus on generating lower cost deposits as a cornerstone of its strategy and plans to launch innovative deposit products in 2010 to generate favorable bottom line impact. Sectoral analysis of deposits revealed that receipts of Deposits from different sector in 2009 have remained analogous to FY08 with some notable exceptions. Deposits from individual have increased to 46% of the total in FY09, which stood at 39.53% last year. However deposits from nonprofit organizations have declined from 10.57% in FY08 to 5.35% in FY09. Addition of 3.9% to deposits from oil and gas and 6.77 magnifications up from 2.28% in FY08 from Financial organization have increased the diversity of sources of deposits for the bank.


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A Financial Analysis of NIB Bank Limited!Trend for advances to deposits ratio (ADR), a key indicator of how liquid the bank s assets are; show that it has been fluctuating. Historically, bank s ADR has been impressive with the exception of last few years where regulator has made mandatory to meet a certain criteria. In 2009 advances rose by 5% which was not matched by deposits which declined by a 10%, thus setting the stage for increase in the ratio. ADR thus rose to 83% in FY09 compared to 73% in FY08. Earning assets to Assets simply calculates that what proportion of the assets held by the bank is actually helping to generate revenue for it. The earning assets of NIB are lending to financial institutions, investments, and advances. These three assets help generate income for the bank. Earning assets to total assets remained stagnant to the level of FY08. Although earning asset increased by 18.8% in FY09 but this was offset by 16% in total asset. Increase in assets can be explained by an increase in bank s cash balances with other banks (360%) and the increase in other assets (79%). This is not a good sign for NIB as it means that it has money tied up in assets which are more or less idle as they are not helping it in generating income which is the ultimate motive of any profit driven enterprise. By improving the lending composition towards higher yielding products sold to commercial and consumer customer segments, the yield on interest earning assets improved from 2006 onwards. In FY09 there has been a slight increase in yield on earning assets i.e. from 0.36 in FY08 to 0. 39 in FY09 but the cost of funding these earning assets has also increased. In FY09 the cost of funding these earning assets was 0.28 as compared to 0.25 in the previous year. This was due to nearly 20% increase in the interest expensed which rose to Rs 12. 8 billion as the bank increased its financing by borrowings increasingly from financial institutions which surge by 164% in FY09 to Rs 62.5 billion against Rs 23.6 billion previous years.


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A Financial Analysis of NIB Bank Limited!Bank suffered heavy losses in FY07 and FY08 mainly due to the high provisioning standard set by the State Bank of Pakistan. The losses do not reflect any inherent weakness in profit generating capability of the bank rather it was due to missing FSV benefit at that time. NPLs grew tremendously in FY07 and FY08. This issue of rising NPLs could be attributed to the economic downturn, the power crisis and the subsequent industrial crisis, which has rendered many borrowers incapable to meet their financial obligations. In FY09 growth rate of NPLs pacified in comparison to previous years. It grew by only 4. 33% in the FY09 and stood at Rs 23.4 billion as compare to Rs 22.4 billion last year. The provisioning against NPLs has reduced by 94% from Rs 8.83 billion in FY08 to Rs 524.5 million in FY09, as the bank adopts conservative approach to safeguard future economic viability. The asset quality of the bank has declined 2003 onwards as the NPLs and provisions rose sharply as a percentage of the total advances and NPLs respectively. In 2009 although there had been an increase in advances but the bank was able to controls its NPLs even in a slow growing economy and a weak manufacturing sector. As stated previously 5% increase in advances followed by 4. 33% increases in NPLs have made the NPLs to advances ratio to remain unchanged in FY09. The SBP vide its Circular No 10 of 2009 dated October 20, 2009 made amendments in the Prudential Regulations and allowed banks to avail the benefit of 40% of FSV of pledged stocks and mortgaged residential and commercial properties and benefit of 40% on industrial properties (land and buildings only) held as collateral against all nonperforming loans. Had the benefit of the said new circulars not been availed by the Bank in the FY09, the net charge for provisions would have been higher by an amount of Rs 1,683. 490 million and profit after tax would have been lower by Rs 1,094.269 million. The


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A Financial Analysis of NIB Bank Limited!increase in profit as a result of taking this benefit is not available for the distribution of cash and stock dividends to shareholders. The overall asset quality is considered acceptable in the light of the current competitive scenario. Collections are expected to come back on target in subsequent months. The bank is continuing to invest heavily in understanding, designing and delivering customer-centric business models for each of the commercial, SME and consumer segments. These unique business models will provide superior service, faster turnaround time and above all, will help it in building lasting relationships with its customers. NIB Bank s Return on Assets improved from negative 4.2% in FY08 to positive 0.36% in FY09. The bank has been unable to make profit after tax since 2007. This loss can be attributed to provisions against NPLs economic downturn. The return on equity also enhanced to positive 1.70% in FY09 from negative 19.6% in FY08. Although there has been increase in equity on the back of rising share capital from 2007 onwards but profit after tax of Rs 691 million contributed to this improvement in ROE. Over the years, the ROE has not been satisfactory, as it is merely around 3% while the industry witnessed an ROE of 23%. This is not favorable for an investor. A significant increase in investments as a share of earning assets can be seen in FY09. It grew by 77% compared to FY08. Such huge magnification in investments and mere increase of 5% in Advances for 2009 indicates cautious strategy and a shift by bank in term of its earning asset mix. Investments rendered a definite return to the banks while advances whether commercial or corporate runs the credit risk of default, which intensify further in the weak economic situations as prevalent in country. In FY09 the solvency position of bank has improve slightly compared to FY08. The equity to asset ratio stood at 20.9% in FY09 against 21.44% in FY08. This year increase in Total Assets (16%) has largely been managed through additional liabilities (20%), mainly on


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A Financial Analysis of NIB Bank Limited!the back of 164% increase in financing from financial institutions. Growth in Total Assets has not been achieved through corresponding increase in equity, which rose by 5% only. Although the growth was witnessed in share capital of the bank (42%) as compared to corresponding period, but it could not make an impressive impact on the overall equity base of the bank which more or less remains stagnant. Thus equity to asset ratio declined marginally compared to last year. Equity to deposits ratio improved from 34.48% in FY08 to 40.92% in FY09. The reason behind this improvement is partially due to the drop witnessed in deposits of the bank, which reduced the base effect from previous high levels. Further, increase in equity in FY09 on the back of increase in share capital (42%) also lead to this rise in equity to deposit ratio. Earning Assets to Deposits ratio shows a contrast between the bank s reliance on earning assets over deposits with respect to revenue generation. As we can observe in the graph, this ratio has enhanced from the last year. In FY09 earning asset expanded by 19% due to rising investments by bank however, deposit did not increased proportionately in comparison to the earning asset, thus we witnessed improvement in this ratio due to lower base effect. This also indicates that bank is depending less on its deposits base for the expansion of earning asset rather it has started to use the borrowing from financial institutions for this purpose which surged by 164% in FY09. Among the market value ratios of NIB, the market to book ratio continued to decrease and stood at 0.51 in FY09 as compared to 1.00 last year. Book value per share declined from 14.4 in FY08 to 10.3 in FY09 due to growing number of outstanding shares, which increased from 2,843,727 in FY08 to 4,043,727 in FY09. This decline in BV followed by greater fall (63.5%) in average market price of the stock during 2009 owed to depressed sentiments witnessed at the local


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A Financial Analysis of NIB Bank Limited!bourses due to the weak economic and dwindling political situations in country.

The P/E multiple of NIB, improved from negative 5.47 in FY08 to positive 30. 86 in FY09 owed to positive EPS posted by the bank in 2009. No dividend payments are made by NIB as its pursuing a rapid growth policy and it s retaining all of its profits for its expansion programmed.

Current Economic Situation in PakistanAlthough economic conditions remain stressed, key indicators have shown improvement in the backdrop of the IMF program. After peaking at 25% in 2008, inflation has reduced to a more manageable level of 10.5%. Although exports reduced in FY09, falling oil and commodity prices resulted in lower imports. Consequently, the current account deficit improved from 8.4% to 5.3% of GDP and the fiscal deficit also reduced from 7.4% to 5.2% of GDP. During the year, the stock market rebounded on the back of renewed investor confidence, with the KSE-100 Index increasing by 60%. During the first half of FY10, the trade and current account deficits have continued to decline, while the pass through of fuel subsidies is expected to contribute to a lower fiscal deficit, although revenue generation remains a concern for the Government. The IMF program remains well on track and the Government continues to meet most monetary and structural reform targets. The manufacturing sector is showing signs of growth, but a speedy resolution of the power


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A Financial Analysis of NIB Bank Limited!crisis which plagued industry last year is essential to revive the economy.


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Current Banking Sector Situation in PakistanAs a consequence of reducing inflation, the State Bank of Pakistan eased its monetary policy with a 250 bps lowering of the discount rate during 2009. Consequently market rates fell sharply during the first half of the year before stabilizing over the last six months. Liquidity is expected to remain tight with higher private sector credit off take, continued borrowing by public sector enterprises, slower retirement of seasonal financing and delayed inflows from foreign sources and further interest rate cuts in the short term will depend on market liquidity and inflation. The nine month results of the banking sector showed a decline in profitability of 18% over 2008 driven mainly by higher provisioning expense. Non-performing loans for the system surged by 28% to over Rs 400 billion as most borrowers remained stressed due to the weak economic environment and stagnant industry growth resulting from the power crisis in the country. Consequently, provisions for the industry for the first nine months of 2009 increased by 25% compared to the same period in 2008. Total banking sector loans declined by 4% as most lenders adopted a cautious stance in the backdrop of rising credit costs. Deposits, after remaining


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A Financial Analysis of NIB Bank Limited!stagnant for most of 2009, grew by over Rs 200 billion in the last quarter.


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The Financial Analysis GeneralIn 2009 NIB has declared a profit after tax of Rs 691 million on an unconsolidated basis, a significant improvement over 2008. This improvement is a reflection of the steps taken by the Bank in 2008 when it brought in additional capital of Rs 12 billion and took a conservative provisioning approach to safeguard against future economic volatility. These results have been achieved through better performance in all areas; loan and low cost deposit growth, reduction in cost of funds and tight control over provisions and operating expenses. On a consolidated basis, NIB delivered a profit after tax of Rs 1,494 million. The difference of Rs 800 million between the unconsolidated and consolidated results is primarily due to improvements in the value of the funds of PICIC Asset Management Company as a result of the recovery in the equity markets. NIB now has 223 branches in 60 cities across the country, serving over 600,000 customers. 222 branches are dedicated to the Banks Retail, SME and Small Businesses, in which 120,000 new customers were added and new loans worth nearly Rs 10 billion were disbursed during 2009. The Bank also increased its lending to top tier Corporate and Public Sector customers, to whom over Rs 11 bn of


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A Financial Analysis of NIB Bank Limited!loans were disbursed. Consequently, loans in the Banks core segments grew by 24% over 2008. NIB succeeded in reducing its cost of funds by 266 bps over the year, by adding Rs 10 billion in current and savings accounts which now form 59% of the deposit base, up from 44% in 2008. At the same time, the Bank achieved a planned reduction of Rs 28 bn of expensive term deposits which it had taken at the end of 2008 and in early 2009. As a result, total deposits reduced by Rs 10 billion. The Bank continues to focus on generating lower cost deposits as a cornerstone of its strategy and plans to launch innovative deposit products in 2010. Net markup income in 2009 increased by 23% over 2008 as a result of better quality loan growth and improvement in spreads. The Bank achieved substantial capital gains in both the debt and equity markets through leveraging market opportunities; however these were offset by reduced foreign exchange income caused by higher premiums and lower market volatility. Non-markup income was thus maintained at the previous years levels excluding the impact of a 1time dividend of Rs 750 million received from PICIC Asset Management Company in 2008. During the year NIB improved staff quality through hiring and more than 16,000 man days of training. The bank also upgraded infrastructure in most branches, and continued to make investments in technology that will benefit NIBs customers. In 2009, NIB rolled out its new Core Banking system and converted all branches to the new, more efficient and flexible platform. Progress was also made towards the implementation of new HR and MIS systems. Despite these investments, the Bank was able to reduce its operating expenses by over 20% over 2008. This was achieved through a strong focus on improving operating efficiency. As a result, the Banks cost/income ratio reduced from 99% in 2008 to 74% in 2009. Although the recent uptick in inflation and rising utilities costs will exert pressure on expenses in 2010, the Bank remains committed


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A Financial Analysis of NIB Bank Limited!to managing its expenses in the best interests of its shareholders and improving its efficiency ratios. The Bank focused on prudent customer selection, and rehabilitation of genuinely distressed customers in 2009. NIB also aggressively pursued recovery and litigation of defaulting customers which resulted in cash recoveries of over Rs 2 billion during the year. Consequently, net provisions reduced by more than 90% from 2008 levels. The Bank also appreciates the efforts made by the State Bank of Pakistan to encourage more realistic provisioning levels by restoring some of the benefit of Forced Sale Value of collateral. With a return to profitability in 2009 and an improving economic environment, NIB is positioned for stronger growth in the coming year. The Banks revenue and deposit base are on the right trajectory, and with credit conditions beginning to ease, the Bank expects to increase its lending activities in targeted segments. NIB continues to improve productivity and operating efficiencies by introducing greater automation and keeping a strong control over costs.


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Division of Shareholders EquityParticulars Directors, Chief Executive Officer, and their spouse and minor children Associated Companies, undertakings and related parties NIT, ICP & IDBP/ICP Banks, Development Financial Institutions, Non Banking Financial Institutions Insurance Companies Modarabas and Mutual Funds Public Sector Companies & Corporations Executives Foreign Companies General Public (including local & foreign individual) Percentage 0.40

74.69 1.03

2.77

0.18 0.05 6.00 0.02 0.35 11.12


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A Financial Analysis of NIB Bank Limited!Others TOTAL 3.39 100.0

Future OutlookThe economy, as a whole, witnessed downturn in the past few years resulting in stubborn inflation as high as 25% from fiscal and current account deficits. Subsequently, the SBP has tightened the monetary policy thus pushing up interest rates substantially. NIB plans to increase its regulatory capital by issuing Redeemable Preference Shares. NIB is supported in principle by its majority shareholder Bugis Investments, and once the capital is raised, NIB will be able to better deal with the challenges that lie ahead in such uncertain times.


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Future ProspectsNow, the bank is looking forward to merge PICIC AMC subsidiary with National Fullerton Asset Management Company (NAFA). This will result in Pakistan's largest asset management company. NIB, pending regulatory approval, will also acquire 100% of Global Securities Pakistan Limited, which is one of Pakistan's leading corporate finance and stock broking firms. After merger the bank also got 30% shares of PICIC insurance company and a 3 year old listed general insurance company. This network will help to the NIB to access under-banked segments and also offer cross-sell products to half a million customers of the merged institutions. The stable and lower cost deposit base of all these merged institutions will allow NIB to grow advances without having to raise deposits at a high marginal cost. So, these merger synergies include lower cost deposits, enhanced customer service delivery channels and overall improved efficiencies. These help provide a competitive edge in the face of increasing competition in the banking sector. Now, Temasek Holdings continues to be the largest single investor in NIB Bank with approximately 74% shareholding. This merger is one step forward in demolishing the banking sector as envisioned by State Bank of Pakistan and enhancing FDI as per the Government of Pakistan's objectives. The powerful franchise of


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A Financial Analysis of NIB Bank Limited!the three merged entities has now been brought together to form a large and powerful bank. Going forward management is confident that the combined bank will be a top performer delivering a wide range of financial services through an extensive branch network. The asset management arms and insurance affiliate are also expected to perform well and provide an attractive dividend stream. We expect that the banking sector in Pakistan will remain extremely competitive for the foreseeable future. Therefore, the success of any new institution will be a function of its clarity of vision and efficiency of implementation. While we are confident that NIB Bank will achieve strong growth in revenues, we believe it is necessary to create the correct foundation for sustainable growth into the future. With an acceptable level of controls and an appropriate level of technology infrastructure, NIB Bank is poised to offer incomparable services to its valued clients through its countrywide network of branches.

SWOT AnalysisA SWOT analysis of the NIB Bank Ltd further strengthens the competitive position and helps to form growth-oriented strategy from an investment point of view.

Strengths Promoting savings and investment

Weakness Centralized organizational structure Information system needed for cards may not be compatible with legacy systems


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Opportunities Large market potential Favorable demographic changes in society

Threats Huge competition with local and foreign banks Rapid technological advancements has become challenge for NIB Bank Ltd

ConclusionsThe time spent for the project at NIB Bank Limited were no doubt a source of great learning for me about many things particularly working of different departments in bank. This practical project do help me attain loads of knowledge about the predominant functions performed by banking companies, but also impart a lot of training as regards the set of behavioral traits which distinguish a particular person from the rest of the lot in a professional environment.


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RecommendationsDuring my research on NIB Bank Ltd I observed some areas that need attention for the management like:

Assessments of Employees PerformanceThere are no proper criteria for assessment of performance of employees and most of the time it is on the personal judgment of the manager who forward the assessment sheets of all employees to area office for their promotions.

Problems with Information SystemNIB Bank Ltd information system is not very good and most of the time online transaction service of the Bank network is down, which occurs to be a big issue in smooth working, management really needs to work on it.

No Rotation Department

of

Employees

from

Department

to

There is not any rotation of employees within departments and cross departments. Therefore, the top management should immediately start thinking in terms of rotating the employees in various departments, as this alter work force into human capital

Implementations of Managerial PoliciesNIB Bank Ltd Limited should develop a very serious management policy to attract multi NIB corporations as its clients. This action, if actualized, would not only prove to be highly profit generating, but it would also contribute a lot towards NIB Bank Ltds image building.

Promotional MarketingAn Analytic Approach by Ali Raza Sahni for NIBs Future ///

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A Financial Analysis of NIB Bank Limited!Bank needs to use more marketing channels to make public aware of its products and services. In the presence of intense competition NIB Bank Ltd has to realize the importance of marketing.

Distributions of Various TasksManagement should distribute work equally among different employees. Some of the employees are overburdened while some sections are overstaffed.

Staff on the Job TrainingTo keep staff well equipped and updated with enormous changes in current banking environment, training are an important part of survival. Especially for the customer service staff and phone banking department as they are at front end and need more efficient performance for having satisfied customers.

Thanks Alot! ReferencesFollowing heads refers to collect data and analyze it as: NIB Official Web KSE Official Web IGI Securities Official Web NIB Bank Club Road Branch, Sargodha Microsoft Encarta 2010 5 Account Holders of NIB Internship Report of NIB (by internees) An Analytic Approach by Ali Raza Sahni for NIBs Future ///

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Various Honorable Teachers

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nib - financial analysis

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